Carbon Tax on Vehicles – A carbon tax is a tax applied to the combustion of carbon-based fuels such as coal, oil, and gas. It serves as a fundamental policy to curtail and ultimately phase out the utilization of fossil fuels, whose combustion contributes to the destabilization and degradation of our climate.
This form of taxation is a means to ensure that consumers of carbon fuels bear the financial responsibility for the climate harm resulting from the release of carbon dioxide into the atmosphere. When set at a sufficiently high level, the carbon tax acts as a potent economic disincentive, compelling a shift towards cleaner energy alternatives throughout the economy. By rendering non-carbon fuels and energy efficiency more economically advantageous, it encourages a widespread transition away from carbon-based sources.
Background to Introduce Carbon Tax on Vehicles in Bangladesh
During the Budget speech, the honorable Finance Minister of Bangladesh informed the Parliament on 1 June 2023 that the government is committed to aligning with international standards, particularly those set by the Income Tax Act followed by 159 developed nations. Building on this commitment, the government aims to adopt policies akin to those prevalent in developed countries, where taxes are imposed on sectors detrimental to public health.
As part of this progressive approach and as an initiative to mitigate environmental pollution in the country, a proposal has been put forth to introduce environmental surcharges (Carbon Tax on Vehicles) based on the nature of vehicles (cc or kilowatt). This strategic move not only aligns with global best practices but also seeks to address public health concerns and contribute to the reduction of environmental harm caused by vehicular emissions.
Introduction of Carbon Tax on Vehicles in Bangladesh
The government of Bangladesh has implemented a carbon tax through the Finance Act 2023. According to the provisions outlined in Section 9 of the Finance Act 2023, this tax, named the Environmental Surcharge, will come into effect from the 1st of July 2023. This marks a significant step towards incorporating environmental considerations into the fiscal framework, reflecting the government’s commitment to addressing ecological concerns and fostering sustainable practices.
Scope of Carbon Tax on Vehicles (Environmental Surcharge)
As per the provisions specified, the Environmental Surcharge (Carbon Tax on Vehicles) will be applicable to various types of assessees. This includes individuals, companies, non-governmental organizations (NGOs), firms, associations of persons (AOP), and any other entities recognized as assessees under the taxation framework.
What types of vehicles will fall under Carbon Tax on Vehicles (Environmental Surcharge)
According to Schedule 2 of the Finance Act 2023, the Environmental Surcharge will exclusively apply to motor vehicles. Furthermore, the schedule provides a clear definition of what falls under the category of “Motor Vehicles.” In this context, Motor Vehicles encompass all vehicles with the exception of buses, minibuses, coasters, prime movers, trucks, lorries, truck lorries, pickup vans, human haulers, auto-rickshaws, and motorcycles. That means surcharge is not applicable on buses, minibuses, coasters, prime movers, trucks, lorries, truck lorries, pickup vans, human haulers, auto-rickshaws, and motorcycles.
Rate of Environment Surcharge (Carbon Tax on Vehicles)
According to Schedule 2 of the Finance Act 2023, individuals possessing multiple cars are required to pay an extra tax, varying from Tk25,000 to Tk3.5 lakh, upon registering or renewing a second car. The specified rates for the Environmental Surcharge on the second car are as follows:
a) For Sedan Car
| CC | Rate per Vehicles |
| Up to 1500cc | 25,000 |
| 1501cc – 2000cc | 50,000 |
| 2001cc – 2500cc | 75,000 |
| 2501cc – 3000cc | 150,000 |
| 3001cc – 3500cc | 200,000 |
| Above 3500cc | 350,000 |
b) For Electrical Vehicle
| kilowatt | Rate per Vehicles |
| Up to 75 Kilowatt | 25,000 |
| 76 Kilowatt – 100 Kilowatt | 50,000 |
| 101 Kilowatt – 125 Kilowatt | 75,000 |
| 126 Kilowatt – 150 Kilowatt | 150,000 |
| 151 Kilowatt – 175 Kilowatt | 200,000 |
| Above 175 Kilowatt | 350,000 |
When to pay Environmental Surcharge (Carbon Tax on Vehicles)
The Environmental Surcharge (Carbon Tax on Vehicles) has to be paid at the time of vehicle registration or fitness renewal. This implies that individuals are required to pay the applicable Carbon Tax on Vehicles, dependent on the vehicle’s cubic capacity (CC) or kilowatt, when undergoing the registration process or renewing the fitness certification for their vehicles.
Who will collect Environmental Surcharge (Carbon Tax on Vehicles)
The entity responsible for the registration or renewal of fitness will collect the Environmental Surcharge (Carbon Tax on Vehicles) from the respective individual or entity. Presently, the Bangladesh Road Transport Authority (BRTA) is the designated authority entrusted with the task of collecting the Environmental Surcharge (Carbon Tax on Vehicles) on vehicles.
Payment Process of Environmental Surcharge (Carbon Tax on Vehicles)
The payment of the Environmental Surcharge (Carbon Tax on Vehicles) follows the same process as other charges associated with vehicle registration or fitness renewal. Specifically, individuals are required to settle the Environmental Surcharge using the Automated Challan (A Challan) system. This aligns with the established payment methods for various vehicular-related fees, streamlining the process and ensuring consistency in the payment mechanism.
Exclusion of lower-capacity vehicle as free one option
If you possess more than one motor vehicle, the Environmental Surcharge (Carbon Tax on Vehicles) will be applicable. Notably, the first vehicle in your possession will be exempted from the Environmental Surcharge (Carbon Tax on Vehicles). However, determining which vehicles require the payment of the Environmental Surcharge is based on the capacity of the vehicles. As outlined in the Finance Act 2023, the surcharge applies to higher-capacity vehicles, while an exemption for one vehicle is applicable to lower-capacity vehicles. To illustrate this, let’s examine the following two examples for better clarity:
Example 1
Mr. Suman Hossain owns two sedan cars, each with a 1500cc engine capacity. What amount is he required to pay as Environmental Surcharge?
Example 2
Mr. Anowar Hossain possesses two sedan cars, one with a 1500cc engine and the other with a 2500cc engine. What is the Environmental Surcharge amount he is obligated to pay?
Example 3
Mr. Rahamatullah is a taxpayer in Bangladesh who owns a sedan car with a 1500cc engine and a Tesla car with a power rating of 175 kilowatts. What is the Environmental Surcharge amount he is required to pay?
Solution 1
In accordance with the stipulations outlined in Section 9 and Schedule 2 of the Finance Act 2023, Mr. Hossain is obligated to pay Tk. 25,000 as the Environmental Surcharge.
Solution 2
According to the provisions of the Finance Act 2023, when an individual owns more than one vehicle, the vehicle with the lowest capacity will be granted an exemption from the Environmental Surcharge. In the above case, Mr. Hossain is required to pay Tk. 75,000 for the 2500cc vehicle. He cannot avail a free option for the higher-capacity vehicle.
Solution 3
Mr. Rahamatullah is obligated to pay Tk. 200,000 as the Environmental Surcharge for his Tesla vehicle with a power rating of 175 kilowatts. It’s noteworthy that the sedan car with a 1500cc engine qualifies for an exemption, and therefore, is not subject to the Environmental Surcharge.
Carbon Tax on Vehicles (Environmental Surcharge) is not refundable or adjustable
The Finance Act 2023 specifies that the Environmental Surcharge (Carbon Tax on Vehicles) amount paid is non-refundable under any circumstances. Additionally, it cannot be adjusted against any other taxes that may be due from the taxpayer. This means that once the Environmental Surcharge (Carbon Tax on Vehicles) has been paid, it is considered a final and non-recoverable payment, and it cannot be utilized to offset or adjust against any other tax obligations.
Conclusion - Carbon Tax on Vehicles
The Finance Act 2023 has introduced a carbon tax for vehicles in Bangladesh, termed as an “Environmental Surcharge”. The amount of this tax is determined by the engine capacity of the vehicle, with higher rates applied to vehicles of greater capacity, especially for individuals owning multiple vehicles. Should you have any questions, feel free to leave them in the comment section below.
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